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Highmark, West Penn Allegheny leaders meet to resurrect merger

| Monday, Nov. 12, 2012, 5:48 p.m.

Three days after a judge ruled that West Penn Allegheny Health System must remain in a merger deal with Highmark Inc., top leaders of the two organizations discussed plans to get the $475 million transaction back on track.

In a joint statement issued on Monday, West Penn Allegheny and Highmark said they have met with the health system's bondholders and more meetings are planned.

Highmark CEO William Winken-werder and Jack Isherwood, chairman of West Penn's board, were among the “small group of most senior leaders” to meet.

“A very productive session was held that focused on efforts the parties could take to address the financial condition of WPAHS to secure approval of their affiliation agreement by the Pennsylvania Insurance Department,” the statement said. “Both parties realize there are significant issues that must be addressed and that prompt action is essential.”

Allegheny County Common Pleas Court Judge Christine Ward on Friday granted Highmark, the state's largest health insurer, an injunction preventing West Penn from talking to other buyers and forcing the health system to remain in its deal with Highmark until May, when it will expire by previous agreement.

West Penn, the region's second-largest hospital system, said it had the right to shop itself after it accused Highmark on Sept. 28 of breaking their deal by requiring that the health system go through bankruptcy to reduce its $1 billion in bond debt and pension liability.

Highmark and West Penn said they are working to improve the health system's finances, including helping it recruit and retain employed physicians.

In testimony during a hearing on Highmark's injunction request, West Penn officials said Highmark wanted bondholders to reduce the $750 million they are owed by $300 million to $400 million. Highmark proposed that the federal Pension Benefit Guaranty Corp. take over West Penn's pensions, which are underfunded by about $280 million.

West Penn lost $112.5 million from operations in the year ended June 30, and its finances are worsening. Officials have predicted the system could be out of money in three to six months without additional help from Highmark.

Highmark wants to acquire the five-hospital system as the centerpiece of a new, $1 billion health system to compete against UPMC, the region's largest hospital system.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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